Betting On a Tech Recovery? These Stocks Won't Deliver
Communications-chip makers are trading as if earnings were jumping. They're not.
FORTUNE
Monday, September 3, 2001
By Herb Greenberg
Tech investors are desperate for any sign of a bottom. When Broadcom CEO Henry Nicholas mentioned in July that business was "stabilizing," it seemed they'd gotten what they were looking for. The stocks of communications-chip makers like Broadcom, PMC-Sierra, and Applied Micro Circuits, which had plunged by more than 75% from their highs, have snapped back over the past four months. Broadcom in particular, at $47, has rebounded an astonishing 75% from its April lows. The worst, it would seem, is over.
Don't be fooled into thinking so. These companies are joined at the hip to the companies that have created the telecommunications infrastructure--the Ciscos, Nortels, and Lucents of the world--and that industry is in no way in the clear. That is leading to a grim prognosis for those who sell chips to them. "Most companies in the group could be expected to lose money for the next four to six quarters," says Merrill Lynch chip analyst Mark Lipacis. He says that any pickup over the next year, or even two, may come in fits and starts as beleaguered customers slowly whittle away their own bloated inventories, reordering only to fill the occasional gap.
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